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Cite as: [2003] IEHC 15, [2003] 3 IR 80

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Fennell v. Frost [2003] IEHC 15 (5 June 2003)
    THE HIGH COURT
    Record No. 2003 187 COS
    IN THE MATTER OF EUROKING MIRACLE (IRELAND) LIMITED (IN VOLUNTARY LIQUIDATION)
    AND IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT 1990 AND SECTION 56 OF THE COMPANY LAW ENFORCEMENT ACT 2001
    BETWEEN:-
    KEN FENNELL AS LIQUIDATOR OF THE COMPANY IN THE WITHIN PROCEEDINGS
    Applicant
    AND
    ALAN NORMAN FRANCIS FROST, JANET MARY BROWNE, JONATHAN RAIFE, JOSEPH CECIL LAMBERTY and MARION RYAN
    Respondents
    JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 5th day of June 2003.
    On Monday 26th May, 2003, I heard an application brought by Mr. Ken Fennell as liquidator of Euroking Miracle (Ireland) Limited, ("the Company"), for a declaration that the first four named respondents be restricted in accordance with s.150 of the Companies Act, 1990. The application as against the fifth-named respondent has been adjourned on consent to permit a replying affidavit to be delivered. The application is brought by originating notice of motion in relation to a voluntary winding up and is therefore a new proceeding. This distinguishes it from
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    similar applications by an official liquidator which are brought by a motion in the existing winding up proceedings.
    Counsel for the applicant brought to my attention the fact that the first four named respondents are all resident in England and that the Rules of the Superior Courts do not make express provision for the service out of the jurisdiction of an originating notice of motion seeking a declaration pursuant to s.150 of the Companies Act, 1990. I reserved my decision for the purpose of considering the jurisdiction of this Court to hear such an application in relation to a non-resident director and the appropriate provisions (if any) as to service in respect of such directors.
    The Facts:-
    The applicant was appointed liquidator of the Company by a resolution of the creditors on the 28th February, 2002 pursuant to s.267 of the Companies Act, 1963. The Company remains in voluntary liquidation and the applicant has certified that, as of the 17th April, 2003, the Company is unable to pay its debts within the meaning of s.214 of the Companies Act, 1963.
    The applicant has stated, on affidavit, that each of the five named respondents were directors of the company within twelve months prior to the date of winding up. He exhibits a search from the company's registration office which demonstrates that particulars of directors and secretary of the Company were filed on the 3rd October, 2000 in respect of appointments made effective from the 3rd August 2000 and that, in respect of the particulars registered, the first four named respondents all have given addresses in England.
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    The applicant provided his report to the Director of Corporate Enforcement, pursuant to s.56 of the Company Law Enforcement Act, 2001, on the 26th November 2002 and, by letter dated the 27th March, 2003, was informed that he was not being relieved of his obligation pursuant to s.56 (2) of the Act of 2001 to make an application pursuant to the s.150 of the Act of 1990 for the restriction of all the directors of the Company.
    The applicant issued an originating notice of motion seeking declarations under s.150 in respect of each of the respondents and purported to serve same on each of the first four named respondents by having it sent, together with other documents, to such respondents at the addresses filed in the Companies Office by registered post on the 29th April, 2003. An affidavit of service to that effect of Robin McDonnell, Solicitor, sworn on the 21st May, 2003, was filed. In that Affidavit, it is stated that no correspondence was received from the first four named respondents and I was informed by counsel at the hearing on the 26th May, 2003, that no documents had been returned.
    Jurisdiction of the Court:
    The first issue to be considered is whether the Oireachtas, in enacting s.150 of the Companies Act, 1990, intended to confer jurisdiction on the High Court to make declarations thereunder in respect of directors resident outside of the State or whether the intention was to confine the jurisdiction to making declarations in respect of directors resident in this jurisdiction. I have concluded that the clear intent of the Oireachtas was to confer jurisdiction on the court to make declarations in respect of all persons who were directors of companies to whom s.150 applies (or who acted as a shadow director in respect of such companies), irrespective of whether such persons
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    are resident within or without the State. I have reached this conclusion from a consideration of the scheme of the Companies Acts, 1963 to 2001 and, in particular, Part VII of the Act of 1990 of which s.150 forms part.
    It is envisaged that persons of nationalities other than Irish and resident outside of the jurisdiction may become directors of companies incorporated in Ireland or registered in Ireland pursuant to s.351 of the Act of 1963. The company, the subject matter of this application, was incorporated in Ireland. Any particular considerations which might arise in relation to a company registered here pursuant to s.351 do not arise in this application. Section 195 of the Act of 1963 obliges every company to keep, at its registered office, a register of its directors which include, inter alia, the directors' usual residential address and nationality. Each company is obliged to furnish to the Registrar of Companies those particulars and any change thereof, pursuant to s.195 (6). Such notification must be accompanied by a consent signed by the person to act as director (s.195 (7)).
    Section 149 (2) of the Act of 1990 provides:-
    "This Chapter applies to any person who was a director of a company to which this section applies at the date of, or within twelve months prior to, the commencement of its winding up".
    It is presumed in Irish law that the operation of a statute is to be confined to the territory of the State unless a contrary intention is evident: Chemical Bank v. McCormack [1983] I.L.R.M 350. It appears to me that the use of the term "any person who was a director" in s. 149 (2) coupled with the purpose and nature of the provisions included in Chapter I of Part VII of the Companies Act, 1990, including s.
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    150, is evidence of such a contrary intent. The jurisdiction conferred on the court by s.150 (1), is in the following terms:-
    "(1) The Court shall, unless it is satisfied as to any of the matters specified in sub-s.(2), declare that a person to whom this Chapter applies shall not, for a period of five years, be appointed or act in any way, whether directly or indirectly, as a Director or Secretary or be concerned or take part in the promotion or formation of any Company unless it meets the requirements set out in sub-s.(3); ... ..."
    The requirements specified in sub-s. (3) are that the nominal value of the allotted share capital, paid up in cash of a public limited company be at least the euro equivalent of IR£250,000.00 or for any other company, at least the euro equivalent of IR£50,000.00.
    Chapter I of Part VII of the Act of 1990 applies to companies which at either the date of the commencement of the winding up, or at any time during the course of the winding, up, are certified as unable to pay their debts within the meaning of s.214 of the Companies Act of 1963. Section 150 has been construed by the courts as imposing a mandatory obligation on the court to make the declaration of restriction under s.150 (1) unless the court is satisfied of the matters specified in sub-s. (2). Those matters include that the person concerned has acted honestly and responsibly in relation to the conduct of the affairs of the company and that there is no other reason why it would be just and equitable that he should be subject to a restriction under s.150. There are, in addition, special provisions which apply to persons nominated by financial institutions in connection with the giving of credit facilities or venture capital companies in connection with the purchase of shares.
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    The primary purpose of s.150, as stated by Shanley J in La Moselle Clothing ltd, v. Soualhi [1998] 2 ILRM 345 at pp.350-1, is:
    "... the protection of the public from persons, who by their conduct, have shown themselves unfit to hold the office of and discharge the duties of, a director of a company and in consequence represent a danger to potential investors and traders dealing with such companies."
    This purpose is sought to be achieved by preventing persons who have been directors of insolvent companies, and who are not in a position to satisfy the Court that they have, at all times, acted honestly and responsibly in relation to the affairs of the company, from acting in the future as a director of a company or being associated with a company unless that company has the minimum specified paid up share capital.
    Having regard to the frequency with which persons resident outside the State are appointed directors of Irish companies, it would clearly be absurd to suggest that the Oireachtas, in enacting these provisions in the public interest, only intended to restrict directors of insolvent companies who happened to be resident within the State and leave dishonest or irresponsible non-resident directors unrestricted freedom to be directors of any Irish companies in the future. The use of the phrase "any person" in s.149 (2) underlines what appears to be the obvious intent of the Oireachtas that the restrictions provided for in s.150 should apply to all persons who agree to act as directors of Irish companies irrespective of where they happen to be resident.
    I am reinforced in the view which I have reached on the construction of this section by a analogous conclusion reached by the Court of Appeal in England in Re Paramount Airways Limited [1992] 3 All E.R. 1. In that case, the Court construed the phrase "any person" in s.238 of the Insolvency Act, 1986 which enables the administrator or liquidator of a company to apply for an order reversing a transaction
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    entered into by the company with any person at an undervalue as including any person wherever resident. They reached this conclusion taking into account what the Court considered to be the current rule of construction that "Parliament is to be taken to have been legislating only for British subjects or foreigners coming to the United Kingdom unless the contrary is expressed ... or is plainly implicit".
    Applications under Section 150:-
    As originally enacted, s.150 contained no express provision as to the persons by whom an application should be made to the Court for a declaration of restriction. Accordingly, Murphy J., when in the High Court and taking the Examiner's list relating to applications in windings up by the court, issued a practice direction that all official liquidators of insolvent companies were obliged to bring applications under s.150 in respect of persons who came within s.149. Such applications are brought as a motion in the winding up proceedings.
    The Company Law Enforcement Act, 2001 made two relevant amendments to the then scheme. Firstly, s. 41 inserted a new sub-s.4A to s.150 providing;-
    "An application for a declaration under sub-s. (1) may be made to the Court by the Director [of Corporate enforcement], a Liquidator or a Receiver.
    Secondly, s.56 now obliges liquidators of insolvent companies to make a report in a prescribed form to the Director of Corporate Enforcement and sub-s.2 obliges such liquidators to make an application to the court for restriction unders.150 unless the Director has relieved the liquidator of such obligation. In the timings provided for under s.56, this application is one of the first applications
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    brought by a liquidator of a company in voluntary liquidation pursuant to his obligation under s.56(2) of the Act of 2001. The Companies Acts are silent as to the persons on whom the application is to be served or to whom notice is to be given.
    There are no Rules of Court specifically relating to applications under s.150 either prior to or since the passing of the Act of 2001. Order 75B was inserted into the Superior Court Rules by S.I. No. 278 of 1991 in relation to proceedings under the Companies Act, 1990. It contains no specific provision relating to applications under s.150. This is perhaps understandable as, at the time of the making of the statutory instrument, there was no express provision for the making of an application under s. 150, simply the mandatory obligation expressed under s.150(1) requiring the Court to make a declaration unless certain conditions were met.
    S.I. No.278 of 1991 also amended Order 74 relating to the winding up of companies by inserting a new rule 136 which provides, inter alia, that;
    "In any winding up, an application ... under any other section of the Acts not herein expressly provided for, shall, in the case of a winding up by the Court, be made by motion on notice and in the case of a voluntary winding up, by originating notice of motion."
    The Acts were defined therein as the Companies Acts 1963 -1990. This application has been brought by originating notice of motion as provided by Order 74 Rule 136 and in accordance with the practice direction of the President of the High Court which sets out certain time limits and other conditions which are to apply to applications under s.150 in voluntary liquidations.
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    The practice direction of the President of the High Court requires the originating notice of motion to be issued out of the Central Office of the High Court and served on the respondent directors 21 days prior to the return date for the hearing of the motion. It contains no specific provision as to the manner of service of the originating notice of motion. Under Order 9, rule 16, the provisions of Order 9 apply "insofar as practicable" to proceedings commenced by an originating notice of motion. Accordingly, in general, where a respondent is within the jurisdiction, this would appear to require, in the absence of any specific Rules of Court, personal service under Order 9, rule 2 "if it be reasonably practicable."
    Service outside the Jurisdiction:
    Order 11 of the Superior Court Rules requires the leave of the court to serve an originating summons (other than one relating to claims within the Jurisdiction of Courts and Enforcement of Foreign Judgements (European Communities) Act, 1988) outside the jurisdiction. Order 11, rule (11) expressly applies its provisions to proceedings instituted by documents other than an originating summons and therefore would, on its face, include the present application commenced by originating notice of motion. It is well established that the list of actions in respect of which leave may be granted for service outside the jurisdiction as set out in Order 11 is exhaustive. See Fusco v O'Dea [1994] 2 I.R. 93. The Court has discretion under Order 11 and is not obliged to permit service out of the jurisdiction of proceedings in relation to causes of action which come within one of the categories listed in Order 11, rule 1.
    Counsel for the liquidator accepts that an application under s. 150 does not come within any of the types of action listed in Order 11, rule (1) and seeks instead to
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    rely either upon Order 11, rule (12) or the inherent jurisdiction of this Court. Order 11, rule (12) provides:-
    "Nothing herein contained shall, in any way, prejudice or affect any practice or power of the Court under which when lands, funds, chosen in action, rights or property within the jurisdiction are sought to be dealt with or affected, the Court, may without affecting to exercise jurisdiction over any person out of the jurisdiction, cause such person to be informed of the nature or existence of the proceedings with a view to such person having an opportunity of claiming, opposing or otherwise intervening.
    It was submitted that the court, in considering whether or not to make a declaration under s.150 of the Act of 1990, is dealing with "rights ... within the jurisdiction". There is some merit in this argument. The consequences of the making of a declaration under s.150 is to impose certain obligations on Irish companies into the future including those set out at s.150 (3) and those in s.155, if a person in respect of whom a declaration has been made is to act as a director or secretary or otherwise is concerned in or take part in the promotion of the company. However, having regard to the terms of s.150 and the consequential effects of a declaration made, it does not appear to me that it can be said that this Court is not "affecting to exercise jurisdiction" over the directors resident out of the jurisdiction within the meaning of Order 11, rule 12. The Court is making an order which affects them personally in so far as it restricts them from being involved in an Irish registered company unless certain conditions are met.
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    I have previously concluded that it is the intention of the legislature that the Court exercise jurisdiction over directors resident outside of the jurisdiction under s.150. The section, in its express terms, makes it mandatory for the Court to make the declaration of restriction unless it is satisfied of one of the matters specified in sub-s. (2). The 1990 Act, in its express terms, does not require the directors to be made respondents to an application brought under sub-s. 150 (4A), nor to be heard prior to the Court making a decision on such application. However, the section must be construed in accordance with the principles of constitutional justice as set out by the Supreme Court in East Donegal Co-Operative Livestock Mart Limited v Attorney General [1970] I.R. 317. This appears to require, insofar as practicable, that the directors be given notice of the application and an opportunity to be heard in relation to same prior to the court reaching its decision.
    I have concluded that the absence of any rule of court expressly permitting a notice of such application to be given to directors resident outside the jurisdiction could not preclude this Court from exercising the jurisdiction expressly conferred on it by the Oireachtas under s.150 and applying a constitutional construction of such provisions so as to permit directors, the subject matter of an application, to be notified of the application and be given an opportunity to be heard before any decision is made. I am supported in this conclusion by a similar conclusion reached by Finnegan J. (as he then was) in McKenna v E H (Unreported, High Court, Finnegan J, 18th July, 2001), in relation to an application under the Proceeds of Crime Act, 1996. At p. 12 of his judgment he stated:-
    "If it is the intention of the Oireachtas, and I am satisfied that it is, that person resident outside the jurisdiction with assets inside the jurisdiction which
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    represents the proceeds of crime should be subject to the procedures of the Act, then I am satisfied that it is the duty of the Court to give effect to that intention and if necessary have resort to the inherent jurisdiction of the Court pending the introduction of appropriate rules of procedure to give effect to the intention."
    Adequacy of Service Effected:
    In this application, copies of the originating notice of motion, grounding affidavit and Practice Direction of the President of the High Court, together with an explanatory covering letter, have been sent by the solicitors for the applicant by registered post to the directors to the addresses specified as their usual residential address in the particulars furnished to the Companies Office pursuant to s.195 of the Act of 1963. These particulars were registered in October 2000. As already stated, if a respondent director is resident within the jurisdiction, in the absence of any specific rule of court, Order 9, rule 16 would appear to require personal service insofar as practicable. Notwithstanding, I have concluded that the service effected by registered post in this application is a sufficient discharge of this Court's obligation to ensure that applications under s.150 are heard and determined in accordance with the principles of constitutional justice for the following reasons:
    1. There is no rule of court which expressly governs the service of the originating notice of motion on a director resident outside the jurisdiction. It does not appear to me that the provisions of Order 11 should apply by analogy as the court does not have any discretion as to whether or not to permit the service of the motion on the director resident outside the jurisdiction. The mandatory
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    nature of the court's jurisdiction and the principles of constitutional justice make it necessary that in every case, insofar as practicable notice of the application be given to the non-resident respondent director.
    2. This is an application brought by a liquidator in an insolvent winding up. It is brought by the liquidator pursuant to s.56 (2) of the Act of 2001 as he has not been relieved by the Director of Corporate Enforcement of the obligation to make the application. There therefore exists, in the view of the Director of Corporate Enforcement, an independent officer, facts which he considers should be brought to the attention of the High Court under s.150 for the purpose of this court considering the necessity of making a declaration under the section.
    3. Unless the costs of the application are ultimately recoverable pursuant to an order of the court from the respondent directors, such costs will form part of the costs of the winding up and will effectively be borne by the creditors of the Company. The costs associated with the application, therefore, should be minimised insofar as practicable whilst doing justice to the respondent non-resident directors. The costs associated with personal service outside of the jurisdiction will inevitably be significantly greater than the costs associated with effecting service by registered post.
    4. The directors are obliged to furnish particulars of their usual residential address and any change in same pursuant to s.195 of the Companies Act, 1963. In many windings-up, the directors may have been in contact with the
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    liquidator in the course of the winding up and the liquidator aware of their actual whereabouts. I am not clear whether there was any such contact in this particular liquidation. However, the date upon which the residential addresses were registered in the Company's Office is relatively recent.
    5. The sending by registered post means that, as a matter of probability, if a person is no longer resident at that address, the papers will be returned.
    6. If, through some error or change of address, the respondent director does not receive notice of the application and does not appear for the hearing of the application, then it will always be permissible for such a person, when they become aware of the order made, to seek to set aside the order by analogy with Order 36, rule 33, if there are grounds upon which the court ought not to have made the declaration. I note the provisions of s.152 (1) of the Act of 1990, expressly permitting a person in respect of whom a declaration under s.150 has been made to apply to the Court within "not more than one year after a declaration has been made" for relief, either in whole or in part, from the restrictions referred to in s.150.
    Whilst I have determined that, in this case, the service by registered post to the usual residential address, particulars of which were filed in the Companies Office, is sufficient service, I have done so on the facts of this case. It would be a matter for each individual applicant liquidator to satisfy the court that, insofar as practicable, he has attempted to give actual notice of the application to a non-resident director by sending same, by registered post, to an address where he believes the director for
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    stated reasons to be residing or having a place of business. Further that by reason of information supplied to the person effecting service by the post office, he has allowed sufficient time to elapse during which the registered letter would, as a matter of probability, either have been delivered or returned. The affidavit of service sworn should cover the several elements to satisfy the court that, as a matter of probability, the non-resident director has received actual notice of the application.
    Substantive Application:
    The applicant has certified that the Company is unable to pay its debts within the meaning of s.214 of the Companies Act, 1963. The first four named respondents were registered as directors within twelve months prior to the winding up. Accordingly, under s. 149 of the Act of 1990, this is a company and the first four named respondents are persons to whom s.150 applies.
    The applicant has drawn the attention of the Court in the grounding affidavit to three matters which he considers should be brought to the attention of the court for the purposes of determining whether each of the respondents has acted honestly and responsibly in relation to the conduct of the affairs of the company. These are firstly, that the directors of the company failed to keep returns to the Revenue Commissioners up to date. Secondly, it is stated that there was selective discharge of debts and a failure to discharge debts due to the Revenue Commissioners in the period prior to liquidation. Reference is made in particular to the discharge of debts to an associated company, Euroking Miracle Limited. Thirdly, it is stated that there was a material transfer of assets, namely, the intellectual property rights of the Company to Euroking Miracle Limited in the period commencing twelve months prior to the date of the winding up.
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    By reason of the aforementioned facts and applying the standards set out by Shanley J. in La Moselle Clothing Ltd. v. Soualhi [1998] 2 ILRM 345 and approved of by the Supreme Court in In re Squash (Ireland) ltd. (in liquidation) (Unreported, Supreme Court, 8th February, 2001) it appears to me that I could not be satisfied that the first four named respondents have, at all times, acted responsibly in relation to the affairs of the Company. The applicant has stated that he does not believe that any of the circumstances set out in s.150 (2) (b) of the Act of 1990 applies. Accordingly, I am obliged to make the declaration of restriction against the first four named respondents as sought.
    By reason of the non-appearance of the first four named respondents, I propose directing that a copy of the order I am making and this judgment be sent by post to each.

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